By Kevin Kastner
WASHINGTON (MaceNews) – It takes a lot to knock the employment report off its perch as the week’s most important economic event, but that will be case in the upcoming week. By the time we get to Friday’s release for October, fatigue may have set it.
Obviously, the main event for the week will be Election Day on Tuesday. Even though it appears highly doubtful that the results of the presidential election will be known that day, the guessing, forecasting, and civil unrest may heat up. Everyone will have an unnamed source with a friend in the state election bureau who claims to have the final count.
Things should be a little clearer a few days later as the dust settles, in time for Thursday’s FOMC meeting. No major policy initiatives are likely to rise from the meeting, but it deserves attention, nevertheless. Chairman Powell will be asked about the election at his post-meeting press conference and the way forward with either a President Trump or a President-elect Biden.
While the results of the election are currently unknown, numbers don’t lie regarding a resurgence of COVID-19, which is either in the second part of the second wave or the first part of the third wave, depending on what state you are in. Powell will face questions on what more the FOMC can do unilaterally as Congress has remained distracted by other matters.
Speaking of fiscal policy, the Treasury will conduct its quarterly refunding on Wednesday where it will announce its financing plans for the upcoming quarter. If another stimulus package is on the distant horizon, borrowing needs will increase to cover the spending.
DWINDLING PAYROLLS GAINS TO BE SEEN AS STIMULUS MEASURES DISAPPEAR
The clock is running out on the government stimulus, as political and judicial considerations took center stage ahead of the election. As a result, the pace of hiring has slowed, particularly in industries that relied on that help to keep things going.
Similar to how the retail industry is gearing up for the 2020 version of a holiday season by adding workers to warehouses and online ordering centers and removing them from brick and mortar stores, restaurants are trying to find ways to remain in business by ordering blankets and space heaters so people can eat outdoors through the winter.
As a result, the leisure and hospitality sector is a wild card this month. The expiration of the enhanced unemployment benefits may have pushed some sidelined workers back into the labor force, but the question of whether jobs are there for them remains unanswered.
The retail sector should be a positive contributor to job growth again this month as early seasonal hiring was underway. However, the transportation and warehousing sector is likely to see more of that seasonal boost as deliveries will exceed in-store purchases this year.
As a result, retail jobs may decline after seasonal adjustment in the coming months, as seasonal adjustment factors expect a large hiring surge that may not occur.
The unemployment rate continued its downward trend in September, falling to 7.9%. With workers flowing into the labor force looking for jobs, an uptick is possible this month.
In addition, keep an eye on the U-6 expanded rate. It’s likely that some workers will be seeking temporary part-time work over the holidays because they cannot find full-time work. That is one of the key differences between this measure and the official rate.
Hourly earnings rose by 0.1% in the September after a 0.3% increase in August, lifting the year/year rate to 4.7% from 4.6%. Lower wage earners are likely to make up more of the employed as the year progresses, keeping hourly earnings growth to a minimum.
Ahead of Friday’s report, the ADP employment measure will be released Wednesday morning. That report has underestimated BLS private payrolls gain in each of the last four months, so a strong gain in the ADP report is a positive for Friday’s data.
MANUFACTURING AND SERVICES CONDITIONS ARE LOOKING UP FOR NOW
The regional data for October show that both manufacturing and services conditions improved further, with all the readings indicating expansion and almost all pointing to an accelerated pace of growth. With the resurgence of COVID-19 cases, it’s possible that the winter months may not be so kind.
The ISM’s manufacturing index fell slightly to 55.4 in September from 56.0 in August, but a rebound seems likely based on the regional data. Only the Empire State and Chicago PMI manufacturing readings declined in the month, and even those remained well ahead of their breakeven points.
Markit will update its October manufacturing estimate earlier Monday morning before the ISM’s release. The flash reading showed a slight increase to 53.3 from 53.2 in September.
For services, the regional indicators moved higher across the board, including a rebound in the Kansas City measure back above its breakeven point.
The Markit flash reading for services rose to 56.0 from 54.6 in September. That measure will be updated on Wednesday just prior the ISM’s services index.
Manufacturing and Nonmanufacturing Conditions
Sources as listed
INITIAL CLAIMS STILL SEARCHING FOR A NEW BOTTOM
The level of initial claims fell by 40,000 to 751,000 in the October 24 week and are expected to decline further in the coming week, maintaining the downward trend. The four-week moving average fell by 24,500 to 787,750 in the October 24 week, the 13th straight decline, and would move lower in the October 31 week.
Continuing claims fell by 709,000 to 7.756 million in the October 17 survey week, down sharply from the 12.747 million level in the September 12 survey week, a positive for nonfarm payrolls. Like initial claims, the level of continuing claims should continue to decline.
Despite the downward trend in claims over the last few weeks, some of the declines can be attributed to an expiration of benefits. This pattern will continue, particularly if further stimulus measures related to unemployment benefits are not implemented.
Here are the key data events for the coming week (U.S. Eastern Time):
MONDAY, NOV. 2
9:45 am Markit manufacturing PMI (Oct final)
10:00 am ISM manufacturing index (Oct)
10:00 am Construction spending (Sept)
3:00 pm Treasury borrowing requirements
TUESDAY, NOV. 3
All Day Election Day
8:55 am Redbook same store sales (Oct 31 Week)
10:00 am Factory orders (Sept)
10:00 am IBD optimism Index (Nov)
All Day Motor vehicle sales (Oct)
WEDNESDAY, NOV. 4
7:00 am Mortgage Bankers weekly applications (Oct 30 Week)
8:15 am ADP employment report (Oct)
8:30 am Treasury Quarterly Refunding
8:30 am Trade deficit (Sept)
9:45 am Markit services PMI (Oct final)
10:00 am ISM services index (Oct)
THURSDAY, NOV. 5
7:30 am Challenger Monthly Layoff (Oct)
8:30 am Initial jobless claims (Oct 31 week)
8:30 am Nonfarm productivity and labor Costs (Q3 preliminary)
2:00 pm Federal Reserve meeting announcement
2:30 pm Fed Chair Jerome Powell news conference
FRIDAY, NOV. 6
8:30 am Nonfarm payrolls (Oct)
10:00 am ISM hospitals index (Oct)
10:00 am Wholesale inventories (Sept)
1:00 pm Baker-Hughes Rig Count (Nov 6 week)
3:00 pm Consumer credit (Sept)
Separately, from Extract Analytics, the upcoming week’s SPX outlook is muddied by election uncertainties and the market needs to prove its strength before getting bullish again:
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Contact this reporter: kevin@macenews.com.
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